This is an ongoing, live article. We will update this article as more information becomes available.
According to the quarterly earnings report from Disney today, Disney+ subscriptions exceeded analyst expectations by about two million subscribers in the first three months of 2022. This period is prior to the reported potential backlash that may have occurred as a result of cultural and social conflict involving The Walt Disney Company. Meanwhile, profits and revenues were a mixed bag for the company:
Revenue of $19.2 billion was up 23% from a year ago but below Wall Street’s forecast — by about $1 billion. Profit fell 48% to $470 million. Earnings per share of 26 cents was down from 50 cents. Excluding items. EPS was $1.08, up from 79 cents. — Deadline
The new total subscribers for Disney streaming is 138 million. Much of the growth came from India’s HotStar service which provides very little revenue per subscriber. Still, the growth in the quarter may be a great sign for investors as it is in reverse of Netflix’s pattern. Much higher production costs did offset some of the financial gains you might expect as Disney is struggling to keep up the churn of entertainment options necessary to grow streaming platforms. Disney, you will recall, has a multitude of streaming platforms versus Netflix which is consolidated.
Meanwhile, Disney World spending per guest is significantly up. That’s good for Disney so long as it doesn’t burn out customers and result in negative perceptions.
Domestic Disney Park Guest Per Capita Spending Grew More Than 40% Over 2019https://t.co/NgmY0Wp7f6
— WDW News Today (@WDWNT) May 11, 2022
Also important, Disney CFO Christine McCarthy was very keen to worn listeners and investors about the future quarters in the fiscal year. Disney+ is not expected to make a profit until 2024, nor is it expected to reach 250 million subscribers until 2024. That number may be difficult to reach. Various price-point options for the service could open that up but it is still a hard number to fathom in just two years. Furthermore, McCarthy warned that the Asian parks may result in upwards of a $300 million in unexpected revenue miss as a result of Shanghai and Hong Kong parks being significantly closed. McCarthy warned that subscriber growth for second-half of 2022 could be lower than expected — this was blamed on the potential for Q1 and Q2 being elevated. However, that would seem to be at odds with the numbers needed for a 250 million 2024 goal being reached. Not discussed was the potential for a backlash to result in those numbers being lower… instead it was blamed on Asian subscriber numbers.
There seems to be some concern about growth in sports costs with licensing fees going up worldwide. Chapek seems more interested in driving subscriptions upward even if content makes a profit-per-subscription ratio lower or even negative.
When it comes to advertising for Disney+, the company is putting plenty of its eggs in that basket. According to Chapek, advertisers have been asking for this for years. He believes the entry-level price point with advertising will provide advertisers with the opportunity to reach demographics in new avenues they currently do not have.
For Disney Parks, it appears that Disney World is pulling the heavy lifting. Despite revenue being up for Disney Parks division, the Asian parks are closed and Disneyland Paris only generated about $900M in Q2… that’s revenue, not profit. That’s very, very low. Traditionally, Disney World has revenues somewhere in the ball park of 5x that of Disneyland, so much of Parks division is coming straight off of WDW.
McCarthy, as part of a answer to a question, has revealed that Disney is working on about 500 regional-specific shows for streaming outside of the United States. She breaks that down to be about 200 Latin American projects, 100 Indian projects, 150 Southeast Asian projects, and more. The investment costs for these are not given, but it must be staggering just given the numbers we’re hearing.
Chapek admits that they are struggling to get their movies into China. Even if they cannot release films into the Middle Kingdom, Chapek dismisses the issues with that given the lower percentage of profits they are allowed to receive from films released in China (Beijing takes about 70% of film revenue from American films released there).
Disney has confirmed that they plan for ESPN to go fully-streaming, online-only at some point in the future.
McCarthy asserts that Disney World’s capacity is being controlled by the company to ensure consumer experience is high. She does not assert capacity is due to safety any longer. Her response is in regards to the question of whether capacity is artificially low due to staffing issues. McCarthy did not directly answer this question with a “yes” or “no,” so some level of diplomacy may have been at play.
Though the initial take for Disney’s release was positively received by investors, we’re monitoring that after-hours trading is showing Disney is dangerously close to dropping below $100 per share for the first time since the pandemic began.
McCarthy clarifies that they have not announced the advertising entry-level tier for Disney+ and they will not announce it today. For the record, our sources at That Park Place have previously told us that amount domestically is likely to be $2.99. Clearly we cannot verify that amount and it is subject to change even if we could.
And with that… it looks like that’s a wrap. We’ll offer analysis of this call tomorrow!
